SAA rescue team their own bosses, says Gordhan, amid hopes process can wrap up by month end

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SAA has been unable to produce an annual report and annual financial statements for the past three  financial years.
SAA has been unable to produce an annual report and annual financial statements for the past three financial years.
  • If all goes well, South African Airways could exit its business rescue process by the end of February.
  • On Wednesday, Public Enterprises Minister Pravin Gordhan and his department provided an update on progress made with SAA's business rescue process.
  • Gordhan said the interim SAA board will remain in place for the next few months.

If all goes well, South African Airways (SAA) could exit its business rescue process by the end of February this year - in other words, in a few weeks' time.

This was the hopeful expectation expressed by the state-owned airline's shareholder, the Department of Public Enterprises (DPE) to Parliament's Portfolio Committee on Public Enterprises on Wednesday. The committee was briefed, among other things, on progress made in addressing challenges facing state-owned companies, including an update on the work of SAA's business rescue practitioners.

The rescue practitioners have to confirm a list of outstanding activities before they can file for a notice that the rescue plan has been substantially implemented.

According to the DPE, from the R10.5 billion allocated for the implementation of the rescue plan in Finance Minister Tito Mboweni's mini-budget in October 2020, R3.5 billion had already been made available and the full balance can now be transferred to the airline.

Public Enterprises Minister Pravin Gordhan told the committee that the interim SAA board will be in place for the next few months. 

"As long as SAA remains in business rescue, neither the board nor the DPE as shareholder has any control over what happens in that airline," he said.

The DPE is having discussions with the rescue practitioners about the possibility of having SAA use some of the bigger aircraft it still owns to deliver vaccines to SA and to the rest of Africa.

"Our brand as national flag carrier should be delivering the very important commodity here and travel across the continent to deliver it. That is, however, still a matter for discussion [with the rescue practitioners]," said Gordhan.

Concerns about business rescue costs

The list of about three or four issues that still need to be resolved in the rescue process includes a reconciliation of the payment of creditors and employees and possibly setting up a receivership to enable the rescue practitioners to exit.

Concern was expressed about the length of the rescue process, since SAA went into business rescue on 5 December 2019. There are also concerns about the cost and fees in relation to the rescue practitioners.

Gordhan suggested that the committee call the rescue practitioners themselves to report on - among other things - their fees and how they spent money allocated for the rescue process.

"The rescue practitioners are their own bosses in terms of the Companies Act. They only report to the court."
- Pravin Gordhan

He would like to see the law adjusted in the case of SOEs so that rescue practitioners are not "free agents with total autonomy".

Gordhan said he had given instructions that money provided to SAA - as much as possible - be saved so that it can be redirected "to a better cause if that is required". The aviation market has been adversely impacted by the Covid-19 pandemic and the emergence of the new variant of the coronavirus in SA. Some of the key source markets for international passengers have restricted traffic movement to and from SA, for example.

Regarding the key issue of obtaining a strategic equity partner for SAA, Gordhan said details on this fall in the commercial realm.

"We cannot give details at this point as the state then loses its competitiveness. We have a shortlist produced by a consulting firm and provided that to the interim board. And once we have the final numbers on the cost of the rescue process, we will make it available to the committee so you can call the rescue practitioners at some point and we will then also give our version at that time," Gordhan said.

"We will continue to do what we can for SAA and in as a humane way as possible. We have a social plan in place to support SAA employees."
- Pravin Gordhan

The committee was told that members of the SAA Pilots' Association (Saapa) have been locked out since mid December last year. At issue is the termination of Saapa's Regulating Agreement, which Saapa is challenging. This matter is still in deadlock. 

Furthermore, the National Union of Metalworkers of South Africa (Numsa) and the SA Cabin Crew Association (Sacca) have brought an urgent court application this week. They want their members also to be paid a three-month back pay that was offered and paid to SAA employees who signed a full and final back pay settlement offer by the DPE. Numsa and Sacca want to, however, get this payment without - unlike the other employees who signed - giving up claims to get the rest of the about eight months of backpay paid at a later stage.

The DPE made it clear to the committee that it is simply unaffordable with the limited funding available to pay the full back pay as Numsa and Sacca want. The DPE further warned that this action is putting the rescue process at risk.

The committee was told that so far 3 250 of SAA's almost 5 000 employees applied for voluntary severance packages, most of which have already been processed. 

Lastly, the committee heard that SAA has been unable to produce an annual report and annual financial statements for the past three  financial years. The last audit finalised by SAA was in 2017/18. Since then the airline has not finalised the subsequent audits "due to the financial and operational challenges", according to the DPE. SAA's financial challenges during the 2019/20 financial year had culminated in the board filing for voluntary business rescue.

According to economist Peter Attard Montalto of Intellidex, the timeline of a business rescue practitioners exit shortly is "fascinating" because it is not clear they leave it as a sustainable business if a strategic equity partner has not been finalised.

"Expectations seem to be split on if it will ever fly again, but it seems possible it will get some form of short-term credit line and fly some domestic routes. We should, however, all remember that a strategic equity partner will be coming into a market with more, not less, competition now. There is no room for inefficiency on wafer thin margins nor political imperatives," comments Attard Montalto.

Earlier this week, the Organisation Undoing Tax Abuse (OUTA) called on the DPE and Treasury to liquidate SAA and halt what it calls "the drawn-out and exorbitant plan to revive what is an airline in name only".

"In our view, which is based on a considered analysis, SAA is beyond repair. Government should close it down and avoid wasting our country's limited taxes,” said Julius Kleynhans, executive manager for public governance at OUTA.

In the view of Joachim Vermooten, transport advisor to OUTA, SAA's business rescue plan is fundamentally flawed and will fail.

"The plan is over-ambitious, based on unrealistic forecasts, does not take into account the depressing market conditions fuelled by the Covid-19 pandemic," commented Vermooten.

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